Source: CPA Leadership Institute
A recent study conducted by CPA Leadership Institute surveyed accounting firms that have been involved in a merger. Whether you’re considering a merger to grow and strengthen your business, or to plan for succession, you’ll find valuable insight based on real data in this study.
The study addresses several critical merger issues:
- Purchase price, as a percent of annual gross revenue.
- Duration of the pay out period.
- Length of client retention, which can affect purchase price.
- Cash paid at closing, as a percentage of purchase price.
As well as some post-merger consequences:
- Principal reason for loss of clients.
- Effect of merger on acquired firm offices.
- Effect of merger on acquired firm’s partners and staff.
Results of the study were divided into two time periods. The current time period covers mergers from January 1, 2007 - March 31, 2008. Past mergers covers mergers from January 1, 2000 - December 31, 2006.
Table 1 below demonstrates several notable results:
- For past mergers, 50 percent of transactions were priced at 100 percent of gross revenue, while for the current time period transactions priced at 100 percent of gross revenue declined significantly, to 29 percent. For the current period, transactions priced below 100 percent increased from 25 percent to 36 percent.
- For both current and past mergers, the percentage of cash paid at closing remained relatively steady, with 69 percent and 66 percent, respectively, paying zero percentage of the purchase price at closing.
- Another notable result is that duration of payout period seems to be increasing. In the earlier period, 31 percent were at six years or more. During the later period, 53 percent were at six years or more.
Click here to view complete results: TABLE 1 – Cumulative Merger Study Results
Additionally, results of the merger study have been differentiated by gross revenue of the firm acquiring and then separately by gross revenue of the firm acquired. (Revenue categories consider gross revenue of each firm prior to affiliation.)To view complete results by revenue category click here.
If your firm has been part of a merger, we invite you to enter your data by clicking here. The CPA Leadership Institute continues to collect survey responses that will be included in quarterly updates to the accounting firm merger study.
From CPA Leadership Institute, www.cpaleadership.com.
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